Patents are property. In almost all countries that grant patents, the patents have claims that define their property right. Patent claims cover a technology if all steps or components defined by the claims occur in the making or the using of the technology. The owner of a patent has the right to exclude others from the technology that is covered by the claims of the patent. Patents are granted in all countries in the world having significant economies.
Several patent treaties exist. The Paris Convention (“PC”) is a treaty that provides a right of priority for an application for patent in one country based upon a patent application for the same invention previously filed in any other PC country. The Patent Cooperation Treaty (“PCT”) provides a mechanism to effectively file a single PCT application simultaneously in all PCT countries. The European Patent Convention (“EPC”) is a treaty that provides for a single filing, examination, and issuance of a European patent in EPC countries. Similar in effect to the EPC are the ARIPA, OAPI, and other multiple state patent treaties. Data indicating the enforceable term of a patent, (its domestic priority dates, filing date, Paris Convention date, issue date, and terminal disclaimer date), claims, and specification, inventors, owners, classification, level of scrutiny applied in granting or maintaining a patent (e.g., the number of references examined prior to grant and existence of any additional proceedings involving the patent), and additional information about the patent exists within each patent.
Patents are classified by technology area. The two patent classification conventions used worldwide to classify patents are the United States patent classification system, USPCS, and the international patent classification system, IPCS.
Economies are defined by jurisdiction, such as the United States, Canada, the European Union or any of the component countries of that union. Gross Domestic Product (“GDP”) is the indicator of all goods and services generated by an entire economy. GDP is an internationally used measure of economic activity of an economy. Other indicators of economic activity for an entire economy are gross corporate earnings, net corporate earnings, and total receipts or sales data. An indicator of economic activity for an entire economy is a macro economic indicator, MEI. MEIs typically are expressed in units of dollars per unit time. These indicators typically measure the economic activity in periods of months, quarters of years, or years. Macro economic indicator data, such as GDP estimates, exist for all countries. For examples see the 1998 WORLD FACT BOOK, CIA, at the URL www.odci.gov/cia/publications/factbook/country.html.
Economies are categorized by sectors. A sector is alternatively sometimes called an industry. A sector is that part of the economy the produces goods and/or services having a set of defined properties. For example, medical devices, pharmaceuticals, and telecommunication services define three distinct market sectors. Each market sector may be divided into sub-sectors, sub-sub-sectors, etc. Several conventions exist to define sectors. One convention is the Standard Industrial Codes, SIC codes, currently being replaced by the North American Industry Classification System, NAICS. Several companies have developed their own sector conventions to categorize economies of the world.
Each sector of the economy produces goods and services that account for a certain fraction of the value of any MEI for an economy. For example, the goods and services provided in the medical devices sector of the economy accounts for a fraction of the GDP of the United States. Values for an MEI or values for a portion of an MEI generated by a sector of the economy is defined herein as macro economic data, or MED. MED also exists and is publicly available, for example, at the www.odci.gov web site mentioned above.
Valuation is an accounting term which means a lump sum of money payable to receive the future benefits of property at a particular time. See Henry A. Babcock, FASA, Appraisal Principles and Procedures, Chapter 6, p. 95, published by the American Society of Appraisers, Washington, D.C.
There are three generally accepted accounting theories for valuing assets: the cost, income, and market value theories. Cost value theory values a property by the cost of replacing the property. Income value theory values a property by the present worth of the net anticipated economic benefit of the property. Market value theory values a property as the present value ascribed to similar property in an active public market. See Smith et al., “Valuation of Intellectual Property and Intangible Assets,” published by John Wiley & Sons, Inc., New York, N.Y., Copyright 1994, ISBN 0-471-30412-3, for an in depth discussion of these valuation theories applied to patents, trademarks, copyrights, and other intangible assets. Smith et al. disclose using conventional analysis based upon the cost, income, and market theories to value a patent. The analyses disclosed by Smith et al. require micro economic data, such as sales data indicating the income derived from sale of products covered by the patent (income theory), the revenue derived from licensing the patent (income theory), or data indicating the cost of purchasing comparable patents relating to the patent being analyzed (market theory).
The article “The Economics of Patent Portfolio Valuation,” by Jonathan D. Putnam, available on the Internet at the URL www.ip.com/ipFrontline, discusses analyzing data indicating for which patents a company makes annuity payments to rank the relative value that the company associates with each of those patents. The Putnam article does not disclose a means to quantify the value of a patent. U.S. Pat. No. 5,999,907 discloses an intellectual property audit system in which selected patents are compared to the known value of previously licensed patents in order to estimate the value of the selected patents (market theory). U.S. Pat. No. 5,991,751 discloses determining the value of a set of a company's patents based upon the revenues generated by the company for sale of products that map to that set of patents (income theory).
Valuing patents is important for many purposes including determining business balance sheet values, taxes due, acceptable licensing rates, patent infringement damages, and capital allocations. Smith et al. identify intangible assets including patents as accounting for a majority of the value of many major business enterprises. Importantly, Smith et al. identify patent value as a significant portion of the market valuation for many businesses.
The conventional economic valuation of a patent based upon the cost, income, or market value theory is labor intensive, costly, complex, and uncertain. Conventional patent valuation requires an analysis to determine the meaning of the claims, a comparison of products to the meanings of the claims to determine what products are actually covered by the claims, a determination of the market covered by the claims of the patent, and a determination of the cost advantage of the patented technology compared to alternative technologies for that market. The cost advantage determination requires either knowledge of actual market costs or an actual or determination of a hypothetical patent licensing rate. In addition, there is uncertainty associated with any conventional patent analysis due to the risks that the patent claims may be found invalid and that the technology covered by the patent may loose its cost advantage due to development of alternative technologies. In addition, the data necessary for members of the public to perform the conventional economic valuation is simply not available to the public. This is because that data includes relationships between patents, product lines, and product line specific costs and earnings information, and companies rarely release that type of information and often do not even determine that type of information. Thus, the conventional valuation of patents is prohibitively expensive for many purposes, uncertain, and based upon data that often is unavailable to the public.
The distribution of capital for investment occurs in the financial markets. Distribution of capital is based upon investment decisions. Investment decisions are based upon the analysis of the totality of the information available to investors. That information includes financial data, which is defined herein to mean data for a company indicating the financial condition of the company. Financial data for a company includes market capitalization, gross sales, profit margin, shareholders equity, net earnings, and book value. Financial data is available in electronic form from numerous sources, including the major stock exchanges, such as the New York Stock Exchange, and secondary suppliers, such as Data Broadcasting Corporation from their web site www.esignal.com, and from Yahoo Corporation at their web site www.yahoo.com. In an ideal capital market, investors would always invest capital in the most efficient manner, which means that they would invest in the investment that would provide the highest return on their investment. Increased availability of valuation information and the analysis of that information to identify preferred investments promotes economic efficiency by funding investments that will provide the most benefit to society. Since capital allocation is based upon valuation, inefficient valuation of patents results in inefficient allocation of capital.
In summary, the prior art provides no method to objectively and efficiently determine the effect of a patent on the value of a company.
This invention provides fast, efficient, and objective means for valuing patents that can be used for all purposes for which patent valuation is useful, and enables a company's patent portfolio to be used as an indicator of the company's future financial performance. The ability provided by the invention to efficiently and objectively value a company's patents increases the accuracy of financial projections and decreases their cost and therefore results in more efficient capital allocation in financial markets.